Buffett’s Board Selects Manager to Eventually Become CEO

Feb. 27 (Bloomberg) -- Warren Buffett, chief executive
officer of Berkshire Hathaway Inc. for more than four decades,
said the board has picked his eventual replacement.

Buffett didn’t identify the choice in his annual letter to
shareholders Feb. 25, saying instead that directors were
“enthusiastic” and have had “a great deal of exposure” to
the person designated to take over as CEO. Buffett, 81, didn’t
specify a timeline for the switch.

Buffett praises Berkshire managers by name in his letters
and has said previously the company had multiple candidates
qualified to take over in an emergency. Tony Nicely, CEO of the
Geico insurance unit, reinsurance head Ajit Jain and Director
Bill Gates have been cited by investors as potential contenders.
The board’s agreement on one individual suggests the company is
increasing its focus on transition.

“It’s more of a commitment, clearly,” said Alice
Schroeder, author of “The Snowball, Warren Buffett and the
Business of Life” and a Bloomberg View columnist. “This is not
the if-I-get-hit-by-a-bus plan. This is the succession plan.”

Nicely, 68, has reported to Buffett since 1996 when Omaha,
Nebraska-based Berkshire acquired full control of Geico. The
company has expanded to No. 3 in the U.S. auto-insurance market
under Nicely. Gates, co-founder of Microsoft Corp., is Buffett’s
friend. Buffett committed the bulk of his wealth to the
philanthropic foundation started by Gates, 56, and his wife
Melinda Gates.

‘In the Family’

“The Geico culture and the Berkshire culture are almost
one in the same,” said David Rolfe, chief investment officer of
Berkshire shareholder Wedgewood Partners Inc., who said he
considered Nicely the most likely pick. “In the realm of
choosing someone almost in the family, that’s Gates.”

Berkshire relies on Buffett, also the chairman and head of
investments, to oversee a $77 billion stock portfolio and
operating units with more than 270,000 workers. He runs the firm
from Omaha with a staff of less than 25 people and consults with
Vice Chairman Charles Munger, 88, about investments. The quality
of Berkshire’s businesses and managers will give the new CEO “a
running start,” Buffett said.

“Do not, however, infer from this discussion that Charlie
and I are going anywhere,” Buffett said. “We continue to be in
excellent health, and we love what we do.”

Buffett said in the letter that he’s “on the prowl” for
large acquisitions after record earnings at Berkshire’s railroad
and energy units helped build funds. The company’s cash hoard
increased to $37.3 billion on Dec. 31 from $34.8 billion three
months earlier. Fourth-quarter net income declined 30 percent to
$3.05 billion on smaller gains from derivatives.

‘Locked Down’

Buffett is under pressure to demonstrate Berkshire is
prepared for a transition. The stock trailed the Standard &
Poor’s 500 Index last year as Buffett was pushed to apologize
for his oversight of David Sokol, a former manager. Sokol, once
considered a possible successor, left the company in April and
was accused by Berkshire of violating its insider-trading
policies.

“After the Sokol disaster, he had to settle that issue,”
said Jeff Matthews, a Berkshire shareholder and author of
“Secrets in Plain Sight: Business & Investing Secrets of Warren
Buffett.” It was “painfully obvious they needed to have that
locked down.”

Berkshire declined 4.7 percent last year while the S&P 500
was little changed. Buffett owns more than $40 billion of
Berkshire stock. The company is valued at about $198 billion.
Buffett didn’t return a message seeking comment.

Weschler, Combs

Berkshire has hired former hedge-fund managers Ted Weschler
and Todd Combs since the end of 2009 to help Buffett with
investments and said last year that it had identified four
company executives capable of being CEO. One had board approval
to step in “should a replacement be needed currently,”
according to a passage in a 2011 regulatory filing.

In addition to the designee, there are “two superb back-up
candidates as well,” Buffett said Feb. 25 on the first page of
his letter.

The person designated to replace Buffett is the same
manager who was identified by the board last year, the
billionaire told CNBC today. This means Sokol wasn’t the top
candidate in 2011 before his departure, Buffett said. He told
CNBC the pick hasn’t been told of the selection and that the
next CEO will probably not come from the board of directors.

Jain, Rose

Jain, 60, was hired by Buffett more than 20 years ago to
run a reinsurance business specializing in large risks. The
manager is routinely praised by Buffett in his annual letters to
shareholders. Buffett said in March 2011 that while Jain is
qualified to be CEO, “he’s not looking to take my job.”

“I still think Ajit has a good shot at being No. 1,” said
David Kass, a professor at the University of Maryland’s Robert
H. Smith School of Business. “Insurance is still a major aspect
of Berkshire Hathaway.”

Matthew Rose, who started at Berkshire in 2010 after
selling the railroad he led to Buffett, will join Nicely and
Jain in Buffett’s circle of most trusted managers, Howard
Buffett, the billionaire’s son and a director at the company,
said in May.

Abel, Montross

Kass said he considers Rose, 52, along with energy
executive Gregory Abel and Franklin “Tad” Montross, 56, CEO of
Berkshire’s General Reinsurance Corp., among the possibilities.

Abel, 49, who joined Berkshire in 2000, replaced Sokol as
chairman of MidAmerican Energy Holdings. Buffett introduced Abel
to Berkshire shareholders in the annual letter published in
2003, calling the manager Sokol’s “key associate.”

Buffett has said his son would make an effective non-executive chairman after his departure.